British banks braced for details of capital shortfall

The Canary Wharf financial district is seen in east London February 28, 2013.

Reuters/Stefan Wermuth

LONDON Britain's banks discover on Wednesday how much extra capital they need to keep regulators happy when the outcome of an inquiry into their financial health is revealed.

The Bank of England will release the capital requirements on Wednesday morning.

The BOE's Financial Policy Committee, tasked with spotting system-wide risks, said in November that the shortfall could be anywhere between 24 billion and 60 billion pounds. Analysts expect the final number to be around the middle of that range.

Britain's banking supervisor Andrew Bailey has been checking how banks tote up risks on their books to determine overall capital requirements. He is concerned about inadequate provisions for losses on loans, and sceptical about capital figures the banks were coming up with using their in-house models.

Hefty compensation bills for mis-selling loan insurance, over 14 billion pounds and rising, have also hit all four of Britain's biggest banks.

But the focus will be on the Royal Bank of Scotland and on Lloyds, in which the government has stakes it would like to offload by the next election in 2015. Replenishing capital buffers is an important step in making them marketable.

Analysts at Credit Suisse estimate that Britain's four biggest banks - HSBC, Barclays, RBS and Lloyds will need a total of 38 billion pounds of extra capital, though 11 billion pounds has already been raised since November when Bailey's investigation began.

Credit Suisse believes no bank will need to go cap in hand to investors and that shortfalls will be plugged by tapping discretionary capital buffers and retaining earnings, meaning limiting dividends and bonuses.